Why Implement an S&#038;OP process?

Why your organisation CAN & WILL benefit from implementing and S&OP process

Sales & Operation Planning (S&OP) is more often than not, the least understood & utilised aspect within Supply Chain Management. Effective S&OP provides the key communication links for senior mgt. to coordinate the various planning activities within the business. The objective is to develop an overall business plan, which integrates key functional areas. If S&OP is not integrated and working to an agreed cross-functional plan, the business can fail in meeting its objectives & aspirations. Here are 5 ways in which an effective S&OP process can revolutionise your Supply Chain & organisation.

Apportioning accountability

S&OP provides senior mgt. with a handle on business performance and performance going forward. With the correct KPI’s & metrics it will provide important insight & visibility into the critical interactions between Sales, Marketing, Operations & Finance.

Within any S&OP process, each functional area is held accountable for their respective part of the process so for example operations will be accountable for manufacturing to plan & hitting agreed service levels. However, they cannot be held solely responsible for ensuing inventory levels where demand fluctuates from the agreed forecast.

Deviations from the agreed / desired outcomes will always happen – it’s how they are managed going forward that is the important factor. Placing accountability where it belongs is fundamental to strategising the way forward.

Enhanced Integration within the Organisation

Enhanced integration & appreciation between differing functional areas within any organisation will happen with effective & routine use of the S&OP process.

Collaboration & strategising between the senior levels of functional areas will be translated into detailed plans that are in line with business aspirations / goals and the market place. The resulting outputs will be a common & agreed set of goals / targets, improved communication / understanding as well as transparent systems & accountabilities.

No More ‘Don’t Panic Mr. Mannering’

Without an effective S&OP process, there is more often than not, an expectation that somehow the job will get done, it may well get done, but at what cost?

These costs often manifest themselves as: ineffective inventory levels, customer service issues, long lead times, capacity issues, inefficient / reactive operations, as well as inadequate response to potential opportunities (worse still missed opportunities).

Business / cost driving decisions may well be made at the wrong level, without clear visibility of the bigger picture.

Budgets will not be aligned with the plans and will more than likely be at best inconsistent and out of date before the end of any planning cycle.

An effective S&OP process will look to remove these issues and provide a platform whereby any issues that do arise can be managed in a structured & coherent manner.

The organisation works to one set of numbers / goals

Arguably the major benefits of S&OP is being able to run the organisation to one set of numbers / goals, whereby all key stakeholders agree on Forecasted sales and the organisation’s ability meet those Numbers.

This also leads to an appreciation of the demands / constraints on various parts of the business, thus leading to a collaborative & integrated approach to meet the desired outcomes.

The Ability to Shape Demand

With known demand / forecasted demand, known operational capacity constraints & cost appreciation, the S&OP team can / should look to shape / manage demand. For example, if a given SKU will outsell productive capacity, what is the strategy / plan to mitigate this service issue?

Hold more inventory earlier

Manage the customer’s expectations

Increase productive capacity

And so on – i.e. the S&OP provides a pro-active forum to mitigate known / anticipated issues going forward.

For any organisation to achieve these benefits, the Mgt. team MUST;

Commit to the S&OP Process

Incorporate S&OP into not only the Short & medium-term plans, but the organisation’s strategic goals & aspirations

Understand that the S&OP process is PLANNING, NOT Scheduling

All Functions to agree & utilise The Numbers as set out

The S&OP process needs to be a routine continual cycle

The above may seem obvious but all too often organisations will lose their way and or focus. Never be afraid to get it back on track or refresh what you are doing – the payback can be and will be huge!